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PRUDENTIAL RULES FOR BANKS : CRD IV-CRR: NEGOTIATIONS TO CONTINUE IN STRASBOURG.

The European Parliament and the Council agreed, after three-way talks on 12 November, to continue their discussions on the reform of prudential rules for banks (CRD IV-CRR)(1) on 20-22 November in Strasbourg. The EP will consequently not adopt its amendments to the reform at the next plenary session in November, as it had planned as a way of pressuring the Council. Meanwhile, the working groups will have to make an all-out effort to come up with compromises on the outstanding problems. The parties are said basically to have "taken note of their diverging views," Europolitics learned, although discussions advanced on certain points.

This result comes as no surprise. The parties will obviously agree on all the points only once they are ready to adopt the whole package. In Council, the 27 still have to adopt their position on the draft compromises with the EP proposed recently by the Presidency, some of which have not been drafted yet.

As this issue went to press, the finance ministers were set to discuss at the Ecofin Council the progress of negotiations with Parliament. The Cyprus Presidency expects the 27 to give fresh political impetus to this issue so as to wrap up the talks by the end of the year.

LIQUIDITY RATIOS

Views still clash on liquidity ratios, essentially on the long-term liquidity ratio (NSFR - net stable funding ratio). In keeping with the international Basel III agreements, the European Commission initially proposed an observation period before introducing the short-term liquidity ratio (LCR - liquidity coverage ratio) and the NSFR.

The EP proposes to include both ratios in the legislative text straight away and to apply them subsequently through delegated acts. The Council continues to defend adoption of the NSFR under the co-decision procedure. A compromise solution might be to decide that if no legislative act has been approved within a given time period, the Commission will have to adopt a delegated act. The discussions also concerned references to these ratios in the legislative text itself, including the sensitive issue of the reference to the percentages of these ratios and their dates of implementation.

The EP wishes to ensure legal certainty concerning the future adoption of the leverage ratio, an instrument that does not exist for now at European level. Basically, the higher this ratio, the more the bank has to increase its capital or reduce its debt on financial markets. The Commission recommends a gradual approach with the possibility of making the measure binding after an observation period. As with the liquidity ratios, the EP wishes to include these two ratios in the legislative text immediately and to apply them through delegated acts later, in 2017. The Council may be willing to accept the compromise whereby the Commission would adopt delegated acts if a legislative text has not been adopted within a certain period.

Other issues to be settled include the systemic buffers (see Europolitics 4526), the powers of the European Banking Authority (EBA), covered bonds and the touchy subject of bankers' bonuses. Parliament has added an amendment establishing that bonuses may no longer exceed bankers' fixed pay (1-1 ratio). The Council is hesitant, though. Several draft compromises have made the rounds since the negotiations started. The Council now has to present its draft compromise, according to several sources.

(1) The Commission proposed a regulation and a directive in July 2011 to implement the Basel III agreements
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Publication:European Report
Date:Nov 14, 2012
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